The court's strictness with the controlling shareholders is reflected not only in shifting the burden of proof to their shoulders, but also in the exercise of audit at the level of careful examination (Careful Scrutiny) (see, the President's Opinion Lightning Other Municipality Requests 2773/04 Natsba Settlement Company in Tax Appeal v. Atar ([Published in Nevo], 14.12.2006), which in relation to the result constituted a minority opinion; Interest The Renewer; עניין Makhteshim-Basin). The reason for this lies in the concern that the company's board of directors will act with the controlling shareholder's interests in mind, rather than promoting the company's interest per se. In this state of affairs, it is possible that there will not be real negotiations between the controlling shareholder and the company that will be able to give expression and a real response to the interests of the minority shareholders. In view of this, it was held that the minority shareholders of the plaintiffs have only a slight burden of prima facie proof of the existence of discrimination, while it is the controlling shareholder who bears the burden of proving the full fairness of the transaction.
- In our case, as will be recalled, the appellants pointed to a number of data that could give rise to concerns regarding minority discrimination in the marina hotel transactions, and in particular: a hasty approval process by the company's board of directors when there are question marks regarding the degree of independence of the board members, the deficits that appeared in the financial statements of the acquired companies (and in Elsynt's reports in the years following the acquisition), and a drastic decline in the value of Elsynt's shares. In my opinion, these signs raise serious concerns about the fairness of hotel and marina transactions. These question marks, together with the fact that the hotel and marina transactions were not approved at a shareholders' meeting, are sufficient to shift the burden of proof to the respondents. In this context, it should be noted that the fact that theMiscellaneous Applications Civil 9888/99 [Published in Nevo] The judge rejected Gilor The request to obligate Elsynt to convene a shareholders' meeting and to condition the approval of the hotel and marina transactions on the results of the vote at the meeting, does not negate the conclusion presented above, according to which the failure to approve the transactions by a shareholders' meeting shifts the burden of proof to the respondents. A procedure for approving a transaction separately, and burdening proof separately. Even if the respondents were entitled to carry out the transaction as it was executed, and I do not see fit to establish a position on this matter, they still took upon themselves the risk that in a future lawsuit that will be filed, the burden of proving its fairness will be on their shoulders.
- Therefore, there was no room to place the burden of proof on the appellants, as the trial court did. Instead, it should have examined whether the respondents succeeded in persuading, prima facie, of the full fairness of the transaction, i.e., that the process of approving the transaction was proper and that the price paid for the purchased assets was appropriate. As is well known, this court does not deal with the examination of evidence. However, we will briefly note here that a reading of the minutes of the hearing held on September 9, 1999 in the Elsint Audit Committee on the subject of the hotel and marina transactions (Exhibit 20 of the appellants' exhibits), one gets the impression, on the face of it, that the audit committee did not fulfill the expectations that depended on it. Thus, no attempt was made to examine whether the basic assumptions on which the opinion is based are correct, or whether the valuations indicate the value of the acquired company (as opposed to the value of its real estate assets). In addition, the transactions were not examined against alternatives of purchasing income-producing assets from a party unrelated to the controlling shareholder. In addition, the proximity of the time between the date on which the valuations were submitted to the Alcint Board of Directors (the opinion regarding the hotel transaction was submitted on September 3, 1999, and the opinion regarding the marina was submitted on September 7, 1999), and the date of the meeting of the Board of Directors and the meeting of the Audit Committee at which it was decided to approve the transactions (September 9, 1999) also raises questions as to the ability of the members of the Board of Directors to delve into the data as it should be. Members of the Board of Directors, and members of the Audit Committee in particular, are expected to exercise a reasonable degree of critical examination and examination when dealing with valuations that are critical to assessing whether the transaction is in the best interest of the Company. They must delve deeper into the issue, take an active part in the discussion and address questions to the accountants and legal advisors, all of which, on the face of it, did not take place in this case. Precisely, we do not determine that the price paid by Elsynt for the properties it purchased in the framework of the hotel and marina transactions was indeed exorbitant, as the appellants claim, but rather that the contrary has not been proven, and in view of the fact that the burden is placed on the respondents, the determination of the trial court that the chances of the claim are low is difficult in my opinion.
In addition, the trial court was not required in its judgment to clarify the appellants' arguments on questions of great importance to the matter, such as: the claim regarding the conflict of interest in which the directors who approved the hotel and marina transactions were involved, as it were, and the claim regarding the financing of the acquisition of control from loan funds that was conditional on increasing the equity of the acquiring company using the funds of the acquired company. In this situation, the burden of proof is on the respondents, as stated above.
- It should be noted above all that even under the assumption that in the circumstances of the case the appellants have a duty to prove that they suffered damage (as distinct from the duty to prove prima facie the existence of discrimination), I would still be of the opinion that the conclusion of the trial court should be rejected. As may be recalled, the trial court held that since the appellants did not specify the date on which they sold their shares, they did not meet the burden of proving that they suffered damage, and therefore their class action should not be approved. However, the question of when the appellants sold their shares is not necessarily relevant to the examination of the damage caused to them. This damage was consolidated at the time of the occurrence of the discriminatory event, or when the information about this event reached the stock market and the share price fell as a result. The event that consolidates the damage is not the sale of the shares by the minority shareholders. Therefore, there is no reason to determine that a minority shareholder who sold his shares years later at a profit did not lose as a result of a discriminatory event that occurred in the company. Moreover, the adoption of the trial court's approach will lead to the conclusion that in order to establish a monetary claim, a minority shareholder who has been harmed by deprivation must sell his shares at a loss shortly after the occurrence of the discriminatory event. This conduct is not required by reality, and there is no reason to deny relief to a shareholder who waited and did not sell his shares in the hope that market fluctuations, or other factors, would restore his lost investment. In the present case, the appellants proved, prima facie, that the appellants' conduct led to a sharp drop in the share price. This, in the circumstances of the present case, together with the other indications enumerated above, is sufficient to determine that the appellants have lifted the burden that was placed on their shoulders at this preliminary stage of the hearing. It should be noted that at this stage when the motion to certify the action was heard as a class action, it is sufficient to say that, prima facie, there is a reasonable possibility that the questions that arise in the claim will be decided in favor of the class.
- With regard to the sale of control from Elron to Europe-Israel, I discussed above (in paragraphs 29-30) the reasons that support, in my opinion, the approval of a class proceeding against the Elron Group in respect of the sale of control. Among other things, I noted that the event of the sale of control was accompanied by the following suspicious signs: the distance between the companies' areas of activity, the proximity of the time between the sale of control, the withdrawal from the intention to make a tender offer and the execution of the hotel and marina transactions, the existence of an indemnity clause in the control sale agreement, and the payment of a high control premium to Elron. In my opinion, the event of the sale of control from Elron to Europe-Israel and the event of the hotel and marina transactions are so closely related to each other that it is not possible to estimate the extent of the damage to the reasonable expectations of the minority shareholders in Alcint when the two are severed. This is a chain of events of the kind about which it is said in Parashat Kosoi "Where the transaction consists of stages, which from a business perspective can be viewed as a whole, this whole can be viewed as a single unit from a legal perspective as well. Therefore, a breach of trust can also be attributed to a shareholder for actions that will occur in the future, provided that they are foreseeable and are part of the entire whole."Name, at p. 284). In my impression, in the special circumstances of the case, the intentions of Europe-Israel regarding the future of Elsynt when it acquired Elbit Imaging were already expected at the stage of the engagement between Elron and Europe-Israel. Therefore, as stated, my position is that the management of a class action against the Elron Group for the sale of control should be approved. At the same time, I do not believe that in the framework of the management of the claim itself, this event should be examined with the same intensity of judicial review as that which will be applied to the hotel and marina transaction incident. This is because the sale of control does not constitute an action in one of the company's assets, but rather an action in the possession of the controlling shareholder. In our case, it has not yet been proven that the control premium paid to Elron was so high that it is, in itself, evidence of a lack of fairness on the part of the controlling shareholder Elron. Therefore, I do not see that the burden of persuasion regarding the fairness of the sale of control should be placed on Elron's shoulders (see, Prof. Habib-Segal's position that "there is a range of 'legitimate premium,' and in any case where the premium is within the framework of this broad range, there is no room for judicial intervention... At the same time, in cases where the premium exceeds any reasonable range, there is room for judicial clarification... In the event of such a deviation, there is room to transfer the burden of proof to the seller of control, in order to show that the transfer of control was not made in breach of the duties of the training." Haviv-Segal, Corporate Law After Companies Law The New, Vol. 2 462 (2004)). Therefore, in my opinion, a class proceeding should be approved against the Elron Group for the sale of control, but the burden of persuasion should be left on the appellants that in the circumstances of the case it is appropriate to impose liability on Elron for the results of the sale of control.
Once we have reached this conclusion, it remains to be examined whether the causes of action originating in the event of the sale of control of Elbit Imaging and the event of the hotel and marina transactions, with the decision not to distribute a dividend, are suitable to be clarified in the framework of a class action in accordance with the other conditions set forth in the law and case law.